August 30, 2013

San Bernardino just received the judicial go-ahead to declare bankruptcy more than a year after its initial bankruptcy filing. The ruling, delivered by a federal bankruptcy court on Wednesday, concludes a long legal battle between the city and Calpers, which was fighting to keep the city out of bankruptcy in order to keep its funds flowing into the pension coffers. It now looks like Calpers will have to get in line with the city’s other creditors, meaning it will probably have to take a haircut just like everyone else. . . .

The bankruptcy of one of California’s biggest cities is a major story in its own right, but even more important is what this tells us about Detroit, the country’s largest municipal bankruptcy case. Followers of that saga will note that Detroit’s pension funds are using tactics very similar to those of Calpers, fighting in court to keep the city out of bankruptcy. The Times is careful to note that the two cases are different, and that San Bernardino’s case is not precedent-setting for Detroit. But this is nonetheless an early indicator for how federal bankruptcy courts might treat these cases moving forward—and it gives Detroit’s public pension funds plenty more to worry about.